How to Reduce Labor Costs Without Cutting Staff

How to Reduce Labor Costs Without Cutting Staff

 

Every business owner knows it: you have to spend money to make money.

Spending just enough to put out a product or service you’re proud of (while still making a profit) is a never-ending balancing act, and an important part of that is managing labor costs. 

You couldn’t do what you do without a phenomenal team working beside you, in which case, you want your employees to be compensated fairly. But if you’re spending too much on labor, your revenue could suffer, impacting your company as a whole. If you’ve crunched the numbers and are paying too much in wages, there are ways to reduce labor costs while still increasing profits.

 

Why Should You Reduce Labor Costs?

The target range for labor cost expenditure is 15 to 30 percent of your total budget. Still, some Fortune 500 companies spend as much as 60 percent of their budget paying employees. 

Huge corporations might have the savings to overcome that oversight, but you can’t afford to overspend in any category if you run a smaller business or practice. Doing so could lead you towards layoffs, or even closures. Finding ways to reduce labor costs without cutting headcount has several upsides — in addition to letting people keep their jobs.

• Boost revenue: The lower the labor costs, the higher your profits will be. When your company is in the green, that opens up opportunities for growth and advancement.
• Upgrade systems: When you save on labor costs, you can use that extra revenue to invest in new software and equipment. Purchases like these can help streamline your operations and increase profits even more.
• Allocate funds to advertising: A great product or service isn’t worth much if nobody knows about it. If you’re struggling to bring in leads and generate new business, reducing labor cost can mean more money left for advertising.
• Pad your savings. It’s important to have a reserve for emergencies and essential company expenses. Cutting down on labor costs can give you the breathing room to build up the company savings account.

As an employer, you (of course) want to pay fair wages. However, overspending on labor costs today can lead to financial challenges tomorrow.

 

How to Reduce Labor Costs in Your Business

When money gets tight, layoffs and role eliminations should be a last resort. Typically, when you hear of a company doing significant layoffs, they had to resort to it without knowing of any other solution to turn to beforehand, (or it was simply far too late to turn things around.) Luckily, key solutions to spending less on labor without cutting down on the number of your employees are readily available.

 

1.  Hire The Right Talent & Reduce Turnover

Filling open roles costs money. The hiring process provides an invaluable opportunity for reducing labor costs. That’s because hiring the right talent can improve efficiency and reduce turnover. 

Between hiring a recruiter and paying to list the job, there are a lot of expenses that go into finding an employee. Plus, while that role remains unfilled, productivity is down. That’s money left on the table. So take your time making sure you hire the right person for the job — it can save you money down the line. 

Here are some factors to consider during the hiring process:

• Seek multi-talented individuals: If you hire someone with multiple skills, they might be able to take on more tasks. (That could eliminate the need to hire additional employees!)
• Cultural fit counts: Employees stay longer at companies with a positive company culture. Hiring individuals who are a good fit for your unique professional environment is part of fostering a desirable culture. So, don’t just consider resumes and references; ask yourself if a potential employee would flourish at your company socially.
• Look for experience: Highly experienced individuals work more efficiently and are less prone to making mistakes. The more familiar someone is with their required tasks, the faster they work. That means more output per hour and more profit for the company. 

 

2.  Understand Your Employee Costs

To create an accurate budget for your company, you must understand the actual costs of having employees. There’s more to it than wages and bonuses. When calculating how much to allocate to labor costs, consider the following factors:

• Wages & bonuses
• Vacation & sick days
• Stipends
• Employee spending accounts
• Employer retirement account contributions
• Payroll taxes
• Insurance
• Overtime 
• Supplies & training

All these expenses add up and should be considered when calculating the true cost of every employee. 

 

3.  Allow Flexible Working Conditions

The increase in remote work environments has opened up possibilities for employees and employers. Work-life balance is so essential that most remote employees would rather take a pay cut than return to an office environment. That’s invaluable data for employers wondering how to reduce labor costs. 

Consider allowing more employees to work from home, or even on a flexible-hybrid basis. Providing these flexible work conditions could attract hires with less demanding salary requirements. Collaborating with a remote recruiting company like Edge can help you find talent prioritizing flexibility over high salaries. That’s a win-win for you, and your employees.

 

4. Cross-Train Staff

A no-brainer way to make your workplace more efficient is to cross-train staff. Discover which employees are interested in learning new skills and offer to train them, or even have them shadow current staff on the job. When you have a multi-faceted team, each individual is capable of carrying out a variety of tasks. If you have a small group of employees with a variety of strengths, then each person can quickly pivot into a number of roles. This also lets your employees know that you care about their job satisfaction and growth.

 

5. Find Ways to Automate

Today, you can automate many of your business’ routine processes, from social media posting to payroll management. In fact, Edge offers automated payroll software that eliminates the busy work associated with cutting checks and monitoring labor costs. 

There are many benefits to automating lower-level processes: most importantly, it frees up employee time to attend to higher-level, more profitable tasks. Additionally, machines don’t require salaries or benefits packages. You simply pay the upfront cost of the software or equipment. 

Identify jobs you can automate at your company, and you won’t need to hire someone.

 

6.  Get Intel Straight From the Source

One of the best ways to spot inefficiencies in any department is to speak to the people doing the work. Lower-level employees don’t always get the chance to address concerns with upper management. However, these workers possess a wealth of knowledge about the shortcomings in their departments.

Ask your employees if they have any suggestions for streamlining their roles. They can inform you of redundancies, slow-working equipment, and other factors harming efficiency. 

Speaking with your employees also allows you to learn about their grievances. When you understand what your team does and doesn’t like about the workplace, you are better equipped to make necessary changes and reduce the turnover rate.

 

7. Offer Unique Benefits

A flexible work environment is just one of several non-monetary benefits you can offer. Some employees might accept lower salaries in exchange for specific work perks. These might include:

• On-site childcare
• Catered lunches
• Access to a company car
• On-site training

Many times, offering unique benefits costs a company much less than increasing salaries. You can also provide sales-based bonuses so you only pay employees more when the company earns more. This is an easy way to take some of the financial pressure off your overall budget.

 

How Can Employers Control Labor Costs?

Controlling labor costs requires a combination of skills and is an ever-evolving challenge. Employers must clearly understand their overall labor costs, including every expense involved in hiring, training, retaining, and promoting employees. You should regularly re-run those numbers, because business costs are constantly changing. 

Finding the right talent for your company helps you manage labor costs from the start. Understanding how to attract skilled employees who are the right fit for your company is crucial. Identifying inefficiencies and redundancies and addressing these through tools like automation or contractors can also be helpful. 

 

Hire, Train, and Manage Employees with Edge

Edge provides solutions that help companies hire top-tier employees and automate many core functions. With a highly trained team dedicated to understanding your needs, our primary goal is to set your company up for success. 

We have access to the most vetted candidates for the roles you are filling, and provide in-depth training and onboarding meant to make sure they’re ready before day one. Whether you’re looking for a medical office staffing agency or work in the insurance or dentistry fields, we can help you find high-quality, dedicated employees to keep your business thriving in a cost-effective way.

At Edge, we get that you have a lot on your plate. When you let us take over essential but time-consuming tasks like recruitment and payroll, you can spend more time doing higher-level, intricate tasks that result in more profits— chat with our team here and let’s see how we can get some great global additions onto your team.